July 8, 2016

MBAF CPA Kashyap Bakhai speaks with the South Florida Business Journal on the financial implications of Dwyane Wade’s departure from the Miami Heat.

Miami Heat fans were agonized by Dwyane Wade leaving his team of 13 years for the Chicago Bulls, but the financial damage to the team should be minimal, according to most experts.

The three-time champion, Finals MVP and 12-time All-Star was the face of the franchise and an international star — and not just on the basketball court. Wade was featured in national print and TV advertising campaigns and even served as a guest co-host on “Live with Kelly” on Thursday morning.

Two years after losing the sport’s biggest current star, LeBron James, news of Wade’s flight truly stung fans.

The lone remaining member of the Heat’s “Big Three” is Chris Bosh. However, he’s dealing with a health issue that caused him to miss the second half of the last two seasons and it’s uncertain whether he can play again.

But even with less star power on the court, the Miami Heat’s ticket revenue shouldn’t take a big hit, said CPA Kashyap Bakhai, a principal at accounting firm MBAF and head of its sports and entertainment group. That’s because most season ticket holders are on multi-year contracts so many are already locked in for next season.

“I don’t think long term the franchise value is diminished by his exit,” Bakhai said of Wade’s departure. “Because the team’s management, including Pat Riley and Mickey Arison, and their back office is very strong.

They will always have a good, competitive team in place each year, which is really what defines the value of the team.”

It’s possible that single-game ticket sales could fall and that some season ticket holders won’t show up for games without a star like Wade, Bahkai said. That could reduce revenue from merchandise, consumables and parking, but those aren’t the largest sources of revenue for the team, he added.

University of Miami School of Business Administration Professor of Marketing Arun Sharma said the loss of Wade should definitely hurt game attendance and make it harder for the Heat to renew season ticket holders at the same price.

“There are no stars left so who would the audience come to see?” Sharma said. “It’s a difficult uphill climb so I don’t know what they can do marketing-wise except making the experience of watching a Heat game very entertaining to get people in the seats. Miami has been a very fickle audience.”

According to SeatGeek.com, the overall resale price of Miami Heat tickets on its platform fell from $142 in James’ final season in 2013-2014 to $89 in 2014-2015, although they rebounded to $101 last season as the team returned to the playoffs. Other superstar departures that caused double-digit drops in resale value include Carmelo Anthony leaving the Denver Nuggets in 2011, Steve Nash bolting the Phoenix Suns in 2012 and the Boston Celtics trading Paul Pierce and Kevin Garnett in 2013.

“One thing to keep in mind is that performance of the team certainly impacts the prices,” SeatGeek analyst Chris Leyden said. “While a major player leaving will certainly have an impact on demand, winning can help minimize that impact.” The Heat ranked 6th in overall attendance at 19,740 per game in the 2015-2016 season, according to ESPN. That’s 100 percent capacity – a mark reached by only seven of the 30 teams. The Bulls were first in attendance, even though they missed the playoffs.

According to an estimate by Forbes in January 2016, the Miami Heat was valued at $1.3 billion, good for 10th in the NBA. The team’s value increased 11 percent from the previous year. Indeed, Forbes didn’t decrease its value after losing LeBron James to Cleveland, although its revenue declined by $8 million. It had revenue of $180 million and operating income of $20.8 million for the 2014-2015 season, Forbes said.

In the first year without James, the Heat’s TV ratings on Sun Sports fell 27 percent but they were still fourth-best in the league, according to Forbes.

Bakhai noted that both TV contracts and corporate sponsorship deals are multi-year agreements so there should be minimal short-term impact on the Heat in those areas from losing Wade, even if ratings decline. However, Sharma warned that the renewing sponsors could ask for lower rates unless the team lands another star.

The Heat withstood the loss of stars in the past and it’s brand has remained strong with both fans and sponsors, said Steve Politziner, VP and general manage of Good Karma Brands, a sports marketing company and the owner of the ESPN radio affiliate in West Palm Beach that broadcasts Heat games. He doesn’t expect much sponsorship fluctuation for the Heat.

“I have seen the way they treat their sponsors both with the creativity and, ultimately, the return on investment with sponsors,” Politziner said. “They work in conjunction with the player personnel department to make players available. They have done such a great job at embedding themselves in South Florida, tri-county community.”

Even without Wade, Politziner said there would be plenty of marketing opportunities left for players such as Bosh, Hassan Whiteside and Goran Dragić. South Florida is a strong basketball viewership market, as both Miami and West Palm Beach were in the Top 10 in NBA Finals ratings this year to watch Cleveland outlast Golden State. “What the roster looks like today won’t be what the roster looks like on opening day [next season] and top-flight free agents will be available next year,” Politziner said.

As for Wade’s personal sponsorship, the impact is yet to be seen. The Collection luxury car dealership in Coral Gables features Wade prominently in its marketing. Bakhai said that local sponsorship deals are usually tied to remaining on the local team, unless they are year-to-year deals, but national sponsorship deals are rarely connected to a team.

Those national sponsorship deals are a big reason why Wade could retain his Miami home. Bakhai pointed out that Illinois has a 3.75 percent personal income tax. That would apply to Wade’s salary from home games with the Chicago Bulls and any Illinois sponsorship deals, but national sponsorship deals would be taxed by the state in which Wade resides. If Wade keeps his off-season residence in Miami, he can avoid Illinois state tax on his national sponsorship income, Bakhai said.

So Wade may not be so far away from Miami after all.